Consultant’s Insight: De minimis rules under review globally

Global e-commerce skyrocketed during the pandemic and the market has remained strong ever since. Retailers are embracing omnichannel solutions that link online and physical stores, which benefits online brands by allowing them to sell unique products far and wide that may otherwise have had limited availability in certain stores or regions. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] Unique products and convenience are among the many reasons consumers worldwide shop online — but the most important factor is price. As the pandemic eased and economic concerns such as inflation and possible recession increased, consumers have tightened their purse strings and are now focused on the prices of goods. China’s low-priced e-commerce Chinese e-commerce providers such as Temu and Shein answered the call for low-priced goods and targeted the United States and other countries online with slogans like “shop like a billionaire” and products including men’s sneakers for $8.97 and women’s dresses for $10.97 — bargains too tempting to pass up, particularly for consumers on tight budgets. For China, these e-commerce providers have become the answer to its manufacturing export declines as retailers spread their sourcing partners beyond China, manufacturing their goods in countries around the world and embracing nearshoring . Exports to the U.S. in 2023 recorded their steepest decline in almost three decades, according to a February article from the South China Morning Post . Yet China’ s e-commerce exports boomed. The country’s overall exports in 2023 grew only 0.6% compared with 2022. But small e-commerce parcel exports rose 19.6% year over year, reaching 1.83 trillion yuan ($252 billion) and comprising more than 7% of total exports, according to Chinese customs estimates. However, these cheap imports have wreaked havoc on de minimis rules in the U.S. and other countries, and changes are underway. Reevaluating de minimis rules In 2021, the European Union abolished the threshold whereby goods valued at less than 150 euros ($160.64) are exempt from customs duty. At the time, the EU estimated that up to 65% of such parcels entering the EU were undervalued to avoid customs duties on import. In 2023, Brazil ended its tax exemption on international orders up to $50, intended for shipments between individuals. Brazil’s government announced at the time that “there would no longer be any distinction in treatment between legal entities and individuals’ shipments, with international orders subject to the existing 60% taxation on their value.” Brazilian Finance Minister Fernando Haddad told Reuters that “one or two global players” were disguising their e-commerce as person-to-person shipments to avoid paying taxes. Effective July 1, South Africa will also change its de minimis rules whereby imported parcels will be taxed at 45% plus value-added tax. Meanwhile in the U.S., there are several bills before Congress that call for lowering the de minimis threshold of $800, implementing a “reciprocal” de minimis structure or eliminating the de minimis rule completely. U.S. Customs and Border Protection (CBP) estimates that more than 90% of all import transactions enter the U.S. using the de minimis rule and account for 90% of illegal narcotics, agricultural goods and counterfeit seizures by CBP. To address these concerns, CBP recently suspended several customs brokers and implemented new regulations, including a requirement that goods be declared before arrival in the U.S. Before the change, shippers had up to 15 days after the cargo arrived to declare it under the regulation, formally known as the Entry Type 86 Test, according to CBP. Negative impact on air cargo Businesses are worried that stricter regulations could increase costs and disrupt the e-commerce market. The air cargo market, for example, would be negatively impacted. Indeed, e-commerce has helped keep planes full and rates high. E-commerce accounts for 20% of total air cargo volumes and the share could increase to 30% by 2027, according to IATA . Consumers are also concerned. Regulation changes could mean higher prices. Eliminating de minimis would affect lower-income communities, which spend 74% of direct purchase funds on de minimis imports compared to 52% for higher-income communities, according to a report from Yale University and UCLA released this month. Eliminations or changes to de minimis regulations will result in redefining e-commerce. Platforms would be considered retailers just like Best Buy , Macy’s or Target , while e-commerce logistics would lose its uniqueness and no longer outdo competitors on speed and low costs. Editor’s note: All amounts have been converted to U.S. dollars.

Consultant’s Insight: De minimis rules under review globally

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